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NAB shares jump on UK bid reports

Philip Wen

Reports that National Australia Bank may have the chance to offload its loss-making United Kingdom operations have been welcomed by investors.

Shares in NAB jumped as much as 2 per cent in morning trade, amid reports Spanish banking giant Santander is considering a £2 billion ($3 billion) bid for NAB’s Clydesdale and Yorkshire banks in the UK. NAB declined to comment.

The underperforming UK business has suffered since the global financial crisis, and has persistently weighed on the group’s return on capital and share price. The bank’s operations is centred around the regions in the UK hit hardest by the crisis, including the Midlands and Northern UK.

NAB’s net profit slumped by $1 billion to $4.1 billion last year, mostly due to a wave of bad debts from its UK business.

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The drag on NAB shares have seen it underperform the other big four banks over the past year, resulting in disgruntled shareholders lodging a protest vote against the group’s remuneration report at the bank’s annual meeting last month.

At the meeting, NAB chairman Michael Chaney said the bank had tried to sell the UK business, but was struggling to attract an acceptable price due to weak economic conditions in Europe.

But analysts at Macquarie Private Wealth noted that the troubled northern regions in the UK have began to show signs of economic recovery, with property prices revised upwards and business confidence at post-financial crisis highs.

‘‘These little rays of sunshine could see NAB’s UK Banking earnings return to positive territory after two consecutive halves of negative earnings,’’ the analysts said in a note to clients this morning.

CLSA analyst Brian Johnson said NAB’s issues in the UK had taken attention away from its better performance in Australia.

“Buried beneath years of poor strategic execution, NAB’s core Australian banking business actually earns a higher return on equity than premium valued Commonwealth Bank,” he said in a report.

Nomura’s Victor German said a £2 billion price would imply a valuation equivalent to 70 per cent of its book value, releasing excess capital and boosting the group’s earnings per share.

The Sunday Times in the UK reported that Santander wanted to bolster its British business ahead of a planned listing in London, estimated at about £10bn.

Ana Patricia Botin, chief executive of Santander UK, declined to comment on the bank’s rumoured interest in Clydesdale and Yorkshire, but said the bank was focused on organic growth. Santander UK is the fifth-largest bank in the UK.

“During the crisis we acquired two failing banks. We had 6.5% capital. Today we have practically double. So we are going to devote some of that capital to growth.” she said, according to The Sunday Times. “Right now our thinking is that organic growth is what we are aiming for.’’

Shares in NAB were trading 44 cents, or 1.7 per cent, higher at $26.79 around noon, with other major banking stocks largely flat.